Chapter 20

Porter’s 5 Analysis & PESTLE Analysis

A. HISTORY/BACKGROUND OF PORTER’S 5 FORCES

Michael E. Porter is an economist, teacher, speaker, researcher, author, and

many more. During his profession at Harvard Business School, he researched all
throughout and come up with economic theory and strategy concepts that has been
applied to solve many of the most difficult challenges confronting firms, economies,
and society, including market competitiveness and strategies in companies. Also,
environmental and healthcare issues applied his theories. He was known throughout
the world, especially by corporations and variety of practitioners of their respective
professions. One of his best published article is the Porter’s Five Forces Model in
which he won the McKinsey Award.

Michael E. Porter of the Harvard Company School created Porter's Five

Forces of Competitive Position Analysis in 1979 as a straightforward framework for
determining the core competitiveness and market placement of a business
organization. He came up with that model while researching the inherent competition
in the industry or economy. Most of the industries vary in terms of profitability,
uniqueness, product development, quality, etc. He was able to identify five elements
that may be used to evaluate an industry's competitiveness and profitability. These
elements are very beneficial for the new entrepreneurs who are starting their
businesses in an industry to know what strategies are suitable for the contemporary
issue, what to expect, what to avoid, and what to take advantage of.

In conclusion, Michael E. Porter made a theory or model that would greatly

affect the mindset of those people who wants to enter the industry and those people
who are already into it. The article represent the five competitive forces that affects
the market area and express how important those five to be considered by entities in
adjusting to threats and embracing opportunities with the right business strategies.

B. PORTER’S 5 FORCES ANALYSIS

The state of competition in the industry would always be there because

competition is one of the mature of a business as there be a competitor whenever you
go. The 5 forces below are formed together to shape the industry’s structure and to
determine the competitive intensity of the industry. According to the article of Porter,
“perfectly competitive” industry are very easy for the economist to enter the industry
and also in jockeying a particular position in the commerce. If it will be neglected, an
enterprise would be easily left behind in that kind of industry as it has the worst place
to have a better profitability in the long run.

The forces that would be stated would be difficult for the strategists of the
firms but being to find an ideal position in that kind of industry where you can adapt
to those forces would lead you to greater heights and more opportunities may enter
that may nurture the business. Understanding these underlying competition factors
establishes the foundation for a strategic action plan. They emphasize the company's
major assets and weaknesses, animate the company's industry positioning, define the
areas where strategic adjustments could have the greatest benefit, and identify the
areas where industry trends appear to have the maximum potential to hold the utmost
significance as either threats or opportunities. Understanding these sources also assists
in weighing diversification options.

It is evident indeed that the stronger competitive force that an industry have
determines the potential profitability in that area thus, strategy making or formulation
are essential and critical. At one point, there may be a circumstance wherein the
business would prioritize adapting to the changes in situations that is occurring in the
industry to survive the competition and retain their best position. These competitive
pressures are the result of an underlying structure, or a group of fundamental
economic and technical qualities, that exist in any industry. Being idealistic strategist
who wants to carry the company into the best position in the industry, they must have
the right knowledge and plan to manipulate or use the environmental forces in their
favor.

Figure 1. The Porter’s 5 forces model that govern industry competition

1. Rivalry among Existing Competitors

The first of the Five Forces refers to the number of competitors and their
ability to undercut a company. The larger the number of competitors, along with the
number of equivalent products and services they offer, the lesser the power of a
company. Suppliers and buyers seek out a company's competition if they are able to
offer a better deal or lower prices. Conversely, when competitive rivalry is low, a
company has greater power to charge higher prices and set the terms of deals to
achieve higher sales and profits.
Rivalry among existing competitors takes the familiar form of jockeying for
position - using tactics like price competition, product introduction and advertising
slugfests. Intense rivalry is related to the presence of a number of factors:
a. Competitors are numerous or are roughly equal in size and power.
b. Industry growth is slow, precipitating fights for market share that involve
expansion-minded members.
 c. The product or service lacks differentiation or switching costs, which lock
in buyers and protect one combatant from raids on its customers by another.
d. Fixed costs are high or the product is perishable, creating strong temptation
to cut prices. Many basic materials businesses, like paper and aluminum, suffer from
this problem when demand slackens.
e. Capacity is normally augmented in large increments. Such additions, as in
the chlorine and vinyl chloride businesses, disrupt the industry's supply-demand
balance and often lead to periods of overcapacity and price cutting.
f. Exit barriers are high. Exit barriers, like very specialized assets or
management's loyalty to a particular business, keep companies competing even
though they may be earning low or even negative returns on investment. Excess
capacity remains functioning and the profitability of the healthy competitors suffers as
the sick ones hang on. If the entire industry suffers from overcapacity, it may seek
government help - particularly if foreign competition is present.
g. The rivals are diverse in strategies, origins and "personalities." They have
different ideas about how to compete and continually run head-on into oach other in
the process.
For most industries the intensity of competitive rivalry is the major
determinant of the competitiveness of the industry.

Potential factors:
• Sustainable competitive advantage through innovation
• Competition between online and offline companies
• Level of advertising expense
• Powerful competitive strategy
• Firm concentration ratio
• Degree of transparency

2. Threat of New Entrants

Potential of new entrants in the industry may cause a stir up in the industry in
a sense that it would bring a new capacity and the desire or urge to gain an
overwhelming market share in the long-run. The seriousness of the threat of entry
depends on the barriers that may hinder the new entrants and the response of the
existing competitors in the industry.

There are six major sources of barriers to entry:

a) Economies of Scale. By requiring the entrant aspirant to enter on a large scale or
accept a cost disadvantage, these economies hinder entry. The main entrance
hurdles in the sector are probably scale economies in production, research,
marketing, and service. Economies of scale can be a barrier in finance,
distribution, the use of the sales force, and almost every other area of a
corporation. It will be disadvantageous, especially to those who are only starting
their business because they need to spend more cost in order to pose a threat in
the market.
b) Product Differentiation. Brand recognition creates a barrier by requiring new
entrants to spend a lot of money to overcome customer loyalty. Advertising,
customer service, being first in the industry, and product differentiation are all
factors that contribute to brand identification. It is possibly the most significant
entry barrier in the industries of soft drinks, over-the-counter drugs, cosmetics,
investment banking, and public accounting. Brewers combine brand identification
 with economies of scale in production, distribution, and marketing to build high
fences around their businesses. Moreover, this is where the uniqueness of the
product or service offered is evident.
c) Capital Requirements. The requirement to invest large financial resources in
order to compete creates a barrier to entry, especially if the capital is required for
unrecoverable upfront advertising or R&D expenses. Capital is required not only
for fixed facilities, but also for customer credit, inventories, and the ability to
absorb start-up losses. While major corporations have the financial resources to
enter almost any industry, the high capital requirements in certain industries, such
as computer manufacturing and mineral extraction, limit the pool of potential
entrants. This may cost them a lot of capital in start-up which will make them
think twice in entering the industry.
d) Cost disadvantages independent of size. Regardless of size or attainable
economies of scale, entrenched companies may have cost advantages not
available to potential competitors. These advantages can result from the effects of
the learning curve (and its first cousin, the experience curve), proprietary
technology, access to the best raw material sources, assets purchased at pre-
inflation prices, government subsidies, or favorable locations. Cost advantages
are sometimes legally enforceable, as with patents.
e) Access to Distribution Channels. Naturally, the newcomer on the block must
secure distribution for his product or service. A new food product, for example,
must displace others from the supermarket shelf through price cuts, promotions,
aggressive marketing, or other means. The more limited the wholesale or retail
channels are, and the more existing competitors have these monopolized, the
more difficult it will be to enter the industry. This barrier can be so high that a
new competitor must create its own distribution channels to overcome it, as
Timex did in the watch industry in the 1950s.
f) Government Policy. With controls such as license requirements and restrictions
on raw material access, the government can limit or even prohibit entry into
industries. Trucking, liquor retailing, and freight forwarding are obvious
examples of regulated industries; more subtle government restrictions exist in
fields such as ski-area development and coal mining. The government also can
play an important indirect role by influencing entry barriers such as air and water
pollution standards and safety regulations.

3. Powerful Suppliers/Bargaining Power of Suppliers

By raising prices or lowering the quality of the products and services they sell,
suppliers can influence the terms of a contract with industry participants. Thus, strong
suppliers can extract profits from a sector that is unable to meet cost increases through
price increases. An example of this is that because the soft drinks face fierce
competition from powdered mixes, fruit drinks, and other beverages, they have
limited freedom to raise their prices in response. As a result, soft drink concentrate
producers have contributed to the erosion of profitability of bottling companies by
raising their prices.
Another example is that suppliers of raw materials, components, labor, and
services (such as expertise) to the firm can be a source of power over the firm when
there are few substitutes. If you are making biscuits and there is only one person who
sells flour, you have no alternative but to buy it from them. Suppliers may refuse to
work with the firm or charge excessively high prices for unique resources.
Potential factors are:
• Supplier switching costs relative to firm switching
costs
• Degree of differentiation of inputs
• Impact of inputs on cost or differentiation
• Presence of substitute inputs
• Strength of distribution channel
• Supplier concentration to firm concentration ratio
• Employee solidarity (e.g. labor unions)
• Supplier competition: the ability to forward vertically
integrate and cut out the buyer.

A supplier is powerful (according to Porter) if:

a. It is more concentrated and dominated by a few companies than
the industry to which it sells.
b. Its product is unique or at least distinguishable, or if it has built up a
switching costs. Switching costs are ongoing expenses for buyers changing suppliers.
These arise as a result of, among other things, the buyer's product specifications bind
it to specific suppliers; invested heavily in specialized auxiliary equipment or learning
how to operate a supplier's equipment (as in computer software), or its production
lines are linked to the supplier's manufacturing facilities (as in some manufacture of
beverage containers).
c. It is not necessary to compete with other products for sale to the public industry.
Consider the competition among steel companies and the aluminum companies that
sell to the can industry checks each supplier's power
d. It poses a credible threat of integrating into the industry's business. This serves as a
check on the industry's ability to improve the terms under which it purchases.
e. The industry is not a significant customer of the supplier group. If the industry is a
significant customer, suppliers' fortunes will be affected closely related to the
industry, and they will want to protect the industry through reasonable pricing and
assistance in activities. R&D and lobbying are two examples.

4. Powerful Buyers/Bargaining Power of Buyers

Customers likewise can force down prices, demand higher quality or more
service, and play competitors off against each other - all at the expense of industry
profits.
Customers' bargaining power is also referred to as the output market: the
ability of customers to put the firm under pressure, which affects the customer's
sensitivity to price changes. Firms can reduce price advantage by implementing a
loyalty program, for example. If the buyer has a lot of options, he or she has a lot of
buying power. Buyer power is low if they act independently, for instance. If a large
number of customers band together and ask for low prices, the company will be
forced to make a decision due to the large number of customers' pressure.

Potential factors:
• Buyer concentration to firm concentration ratio
• Degree of dependency upon existing channels of distribution
• Bargaining leverage, particularly in industries with
high fixed costs
• Buyer switching costs relative to firm switching costs
• Buyer information availability
• Force down prices
• Availability of existing substitute products
• Buyer price sensitivity
• Differential advantage (uniqueness) of industry products
• RFM (customer value) Analysis - Recency, Frequency, Monetary Value
• The total amount of trading

A buyer group is powerful (according to Porter) if:

a. It is concentrated or purchases in large volumes. Large-volume buyers are
particularly potent forces if heavy fixed costs characterize the industry.
b. The products it purchases from the industry are standard or undifferentiated. The
buyers, sure that they can always find alternative suppliers, may play one company
against another.
c. The products it purchases from the industry form a component of its product and
represent a significant fraction of its cost. The buyers are likely to shop for a favorable
price and purchase selectively. Where tho product sold by the industry in question is a
small fraction of buyers' costs, buyers are usually much less price sensitive.
d. It earns low profits, which create great incentive to lower its purchasing costs.
Highly profitable buyers, however, are generally less price sensitive (that is, of
course, if the item does not represent a large fraction of their costs).
e. The industry's product is unimportant to the quality of the buyers' products or
services. Where the quality of the buyers' products is very much affected by the
industry's product, buyers are generally less price sensitive.
f. The industry's product does not save the buyer money. Where the industry's product
or service can pay for itself many times over. the buyer is rarely price sensitive;
rather, he is interested in quality. This is true in services like investment banking and
public accounting, where errors in judgment can be costly and embarrassing.
g. The buyers pose a credible threat of integrating backward to make the industry's
product. The Big Three auto producers and major buyers of cars have often used the
threat of self-manufacture as a bargaining lever. But sometimes an industry engenders
a threat to buyers that its members may integrate forward.

5. Threats of Substitute Products or Services

By placing a ceiling on prices it can charge, substitute products or services
limit the potential of an industry. Unless it can upgrade the quality of the product or
differentiate it somehow (as via marketing), tho industry will suffer in earnings and
possibly in growth. Manifestly, the more attractive the price-performance trade-off
offered by substitute products, the firmer the lid placed on the industry's profit
potential. Substitute products that deserve the most attention strategically are those
that (a) are subject to trends improving their price-performance trade-off with the
industry's product, or (b) are produced by industries earning high profits. Substitutes
often come rapidly into play if some development increases competition in their
industries and causes price reduction or performance improvement.
The existence of products outside of the realm of the common product
boundaries increases the propensity of customers to switch to alternatives. For
example, tap water might be considered a substitute for Coke, whereas Pepsi is a
competitor’s similar product. Increased marketing for drinking tap water might
“shrink the pie” for both Coke and Pepsi, whereas increased Pepsi advertising would
likely “grow the pie” (increase consumption of all soft drinks), albeit while giving
Pepsi a larger slice at Coke’s expense. Another example is the substitute of traditional
phone with a smart phone.

Potential factors:
• Buyer propensity to substitute
• Relative price performance of substitute
• Buyer switching costs
• Perceived level of product differentiation
• Number of substitute products available in the market
• Ease of substitution
• Substandard product
• Quality depreciation
• Availability of close substitute

C. REFLECTION (PORTER’S 5 FORCES ANALYSIS)

There are 5 forces in Porter’s model which are the threat of new entrants,
bargaining power of suppliers, bargaining power of buyers, threats of substitute
products or services, rivalry among existing competitors. If new competitors had
been able to enter the industry even though there are 6 major barriers that may hinder
their entrance, the existing players might increase investments in product
development or or marketing promotions to be ahead. This kind of tactic may increase
the overall cost of the operations of the business and a decrease in profit margin will
be observed. The other way around is that the existing companies may lower their
prices to scare off the new entrants. No one would want to enter an industry with low
intensity of profitability.

In terms of powerful suppliers, an evaluation of how easy it is for suppliers to

raise prices. This is determined by the following factors: the number of suppliers of
each essential input; the uniqueness of their product or service; the supplier's relative
size and strength; and the cost of switching from one supplier to another. By
increasing their prices, the profit margin of the businesses in that industry may have a
low profit margin and that kind of environment are fierce. Only those who can incur
cost and risking their profitability until the prices become stable would the only one
who will have the best position in this kind of market.

However, in terms of powerful buyers, it is easy for the consumers to drive

down prices. This is determined by the following factors: the number of buyers in the
market; the significance of each individual buyer to the organization; and the cost to
the buyer of switching from one supplier to another. Both suppliers and buyers play a
vital role in controlling the prices in the industry. If the business is not determined to
adapt in that changes or use that changes into their advantage, they won’t last long in
the business economy in the long duration.

The fourth force is threats of substitute products or services. When there are
close substitute products in a market, customers are more likely to switch to
alternative solutions in rebuttal to price increases. This reduces both the supplier's
power and the market's attractiveness.
 Last but not the least, rivalry among existing competitors. This is where the
four forces are circling as it affects the whole model of Porter’s five forces in a way
that competitors are existing thus, there may be new entrants that would serve as new
competitors in the industry who may provide substitute products or services. Also,
the suppliers may take advantage of the competitors and raise the prices for them to
keep up or the buyers may manipulate them to lower their prices thus, their overall
profitability will decrease.

To sum it all up, managers and analysts can better understand the competitive
environment a company operates in and how it is positioned within it by using
Porter's Five Forces Model. It is still relevant even though it was created more than 40
years ago due to the reason that the Five Forces Model continues to be a useful tool
for understanding how a company is positioned competitively.
The Five Forces model has some limitations, including the fact that it is
backward-looking, which limits the relevance of its conclusions to the short term and
is exacerbated by the effects of globalization. The system's design forces every
company to belong to only one industry group, despite the fact that some companies
operate in more than one. Another issue is the requirement to evaluate all five forces
equally when certain industries are not as significantly impacted by all five.
When analyzing a company's competitive environment, the most important
factors to consider are those listed in Porter's Five Forces framework. High threat
levels frequently indicate the possibility of future revenue declines, and vice versa.
For example, if there are no entry barriers, a young company in a rapidly expanding
field may find itself shut out very quickly. Similarly, a corporation offering products
with numerous alternatives will be unable to use pricing power to increase margins
and may even lose market share to competitors.
Porter's approach has become so popular because it forces businesses to think
about their entire industry when developing long-term strategies, rather than just their
immediate business. Porter's still plays an important role in this, but it should not be
the only tool used to develop a corporate strategy.

D. HISTORY/BACKGROUND OF PESTLE
Francis Aguilar, an American scholar who became a professor in Harvard
Business School in 1964. He’s the one who released Scanning the Business
Environment, a critical novel that may help someone to analyze the external
environment of the organization he/she is within. He is known for being expert when
it comes to strategic planning. From that book, PESTLE tool was established. It was
incorporated into Aguilar's book to aid firms in acquiring information and making
decisions (which is used up until now). His book became the foundation of the
PESTLE we knew in the present times.

He has nevertheless had an impact on the strategic planning community. He

published two more books, but neither of them went beyond the scope of Scanning
the Business Environment. None of them had the same impact on strategic planning
as his first. Even so, PEST analysis might not exist without ETPS. Additionally,
without it, businesses would be missing a vital tool for making wiser business
decisions.
 Without a useful tool, business analysts would be in the dark. Without PEST,
the world’s extensive analyses on businesses, markets, and nations may be delayed for
more years.

E. PESTLE ANALYSIS
PESTLE analysis is essential for the newcomers in the industry who wants to
start their business or a different industry with a existing competitor. PESTLE
analysis is more on looking at macro environmental factors rather than the inside.
PESTLE consists of Political, Economic, Social, Technological, Legal, and
Environmental.

PESTLE assists you in maximizing external strengths in order to outperform

the competition because it focuses on external elements that have an impact on your
business. This is critical for strategizing, particularly with older companies that may
have reached an innovation plateau. It also assists you in minimizing any potential
hazards or threats to your business.

It can be used in four (4) major business scenarios:

a. Strategy Planning
b. Marketing Plans
c. Product Development
d. Workforce Planning

Strategy Planning
An outline is an essential requisite in strategy planning to have a guide in
achieving a certain goal or objective. It is directed on long-term than in short-term
goals of the company. Every strategy are steps to accomplish its vision. The
information from PESTLE analysis plays a vital role to attain the business’ goals.

Marketing Plans
PESTLE is a usual tool that is being used in marketing plans. In order to make
successful promotions and market attractiveness, the company must know every
underlying factors outside the company thus, PESTLE analysis is the perfect tool for
that kind of information acquisition. It can assist you in identifying your target
markets segments, the most effective marketing channels, and conversion targets.

Product Development
Likewise, PESTLE plays a crucial role also in product development. In this
sense, what we call product differentiation may enter. Product differentiation is all
about the uniqueness of the product that is being developed to attract potential
consumers and increase their profitability margin compared to the existing
competitors in the market. In order to select your next course of action and to aid in
the research and development of the product for greater originality, you can gather
information that can help you find market insights, gaps in the market, and analyze
existing items.

Workforce Planning
Workforce planning is a tool used mostly by human resources departments to
determine the appropriate staff levels and competencies in accordance with their
strategic objectives. This could involve filling skills gaps, addressing personnel
issues, lowering employee turnover, and boosting productivity. When planning the
workforce, a PESTLE study can help to reduce the risk of business disruption or
model changes that could drastically change the employment scene. Also, job
mismatch could be prevented when PESTLE analysis is used in workforce planning.

P-E-S-T-L-E

1. POLITICAL
This is all about how and on what degree does the government intervenes and
affect the economy. It consists of government policies and regulations that may be
taken advantage of by the entrepreneurs. On the other way around, it may become a
burden to the starting companies if they don’t learn how to make this factor as an
opportunity.

Political Factors:
a. Government Policy
b. Political Stability/Instability in Overseas Market
c. Foreign Trade Policy
d. Tax Policy
e. Labour Law
f. Environmental Law
g. Trade Restrictions
h. Other fiscal policy initiatives
i. And many more.

The list above makes it evident that political factors frequently affect
organizations and how they conduct business. In order to respond to the existing and
projected future legislation, organizations must be able to modify their strategy and
policy.

2. ECONOMIC
Economic is more on money as it is financially inherent. Since they can be
quantified and modeled more simply than some of the other components in this
framework, economic issues are sometimes given more weight in the research of
financial services industry analysts (which are somewhat qualitative in nature).

Economic Factors:
a. Economic Growth
b. Interest Rates
c. Exchange Rates
d. Inflation Rates
e. Disposable Income of Consumers
f. And so on.

These factors may have a significant effect on the profitability of the

organization and its operation in a day-to-day course. Those factors are determinants
of an economy’s performance and it may affect it on long term in a sense that it
affects the purchasing power of the consumers. Also, the demand and supply may
change.
3. Social
It is more different than the first two as it is more directed on the social life
aspects of the consumers and potential buyers. This factor approach the life and
principles of the people. Also, the idea of targeting specific market segments may
enter here.

Social Factors:
a. Demographic Considerations
b. Lifestyle Trends
c. Consumer beliefs
d. Attitudes around working conditions
e. Population Growth
f. Age Distribution
g. Career Attitudes
h. Etc.

This part tells us how well we understand our customers and cater their needs
and wants and what drives them to purchase the usual products they are buying.
Adapting to the decision making when buying by the consumers may lead the
company to a greater height because changes are bound to happen anyway. For
example during this pandemic, consider the proliferation of connected fitness gadgets,
as well as the many changes to the types of food products we consume and how these
food products are packaged and sold, all driven by trends toward healthier and more
active lifestyles.

4. Technological
Technologies are every where and technological advancements are growing
way to quickly. In order to adapt into changes, the management department of a
company must know how to deal with the new conditions of the environment where
technological factors are very evident.

Technological Factors:
a. Automation
b. Cyber Security
c. Machines (for productivity, transportation, and communication)
d. Equipment (for product development)
e. Technological Awareness
f. Technological Changes

Today's corporate climate is experiencing unprecedented pace and magnitude

of technological breakthroughs, which has had a disastrous effect on many established
organizations and sectors.

5. Legal
The factors under this dimension may seemed to overlap with the political
factors but specific laws are part of this. Most of those said factors are the ones that
regulates the ordinary course of a business. It is obvious that for businesses to conduct
effective business, they must understand what is and is not lawful. Since each country
has its own set of laws and regulations, this becomes a particularly difficult issue for
an organization that trades internationally to get correctly.

Legal Factors:
a. Employment Laws
b. Consumer Protection Laws
c. Copyright/Patent Laws
d. Discrimination Laws
e. Antitrust Laws
f. Health and Safety Laws
g. Product Safety
h. Advertising Standards
i. Licenses and Requirements

For operators, regulations can either be a pros or cons.  An example of a

advantage would be increasing capital requirements and too much safety inspections
that could cost lots of money, whereas an example of a advantage would be strong
regulation in a certain industry, such as food manufacturing wherein safety must be
observed before importing and exporting goods, which might act as a protective thing
for established operators and construct extra barriers to prevent potential entrants that
aspires to enter the industry and compete with the other markets.

6. Environmental
Due to the shortage and scarcity of the natural resources, environmental
dimension became one of the biggest factor that may affect the industry from the
outside. Without having sufficient materials, a business won’t run long, thus
environmental issues are also essential to be solved. Changes in the physical
environment or nature could lead the company at risk or could open opportunities
depending on how they will respond to it.

Environmental Factors
a. Climate change impacts, including physical and transition risks
b. Increased incidences of extreme weather events
c. Stewardship of natural resources (like fresh water)
d. Scarcity of Raw Materials
e. Pollution
f. Carbon Footprint Targets Set by Governments (Both Political and Environmental)

More of the consumers became sensitive, especially in their health and in the
environmental issues in which they demand that the products they are buying are from
sustainable resources.

F. REFLECTION (PESTLE ANALYSIS)

PESTLE analysis consists of six factors that may affect the industry which
solely focuses on the macro environment which are Political, Economic, Social,
Technological, Legal, and Environmental.
 Political, from the word itself politics, means that the government has the
issues that may affect the industry as a whole in which case, the market must adapt in
order to survive and grow.

Economic on the other hand, macro-economic variables deal with controlling

demand in a specific economy. Governments accomplish this primarily through the
use of three different mechanisms: interest rate control, taxation, and public spending.
Micro-economic variables mainly concern how people use their earnings. There are
places or countries that is evidently affected by this where purchasing power is low,
thus price of the commodities are low too.

Social factor is all about the personal or demographical and behavioral

patterns in the population. By knowing that, it will be easy for the company to
position their business where there is more volume of consumers and also, acquiring
the preferences of the customers may assist them in developing products that will give
them an advantage among the existing competitors in the industry. Also, workforce
may be affected in this dimension as it talks about the eagerness of them to work in
your conditions.

Technological dimension is very crucial because of the rapid growth of

technologies and devices. In order to be globally competitive, they must enable their
capabilities in modifying and innovating based on the changes and be determined to
learn something new because for sure, technology is not limited on what we currently
have now. Innovations may affect the market in the industry favorably or unfavorably.
Being technology wise, we may prevent our company to spend lots of money if we
can’t keep up with the technological advancements and disruptions in a certain
industry.

Legal dimension would ensure the peace and order in the industry because of
the laws and regulations that the company must follow in order to operate smoothly.
If some of the laws are violated, they may face lawsuits that will cost them so much
money and their assets may be exhausted but the trials are not finished. Being
disciplined enough and following those regulations will surely aids them to have an
advantage compared to its competitors.

Environmental pose a big threat in present times as our nature being

drastically destroyed in a rapid rate because of the human activities throughout our
existence. We must protect the environment because we are responsible for
everything we consume. Like what they say, with great power comes great
responsibility.